What is crypto liquidation?

However, in the crypto space, the term liquidation is mainly used to describe the forced closing of a trader’s position due to the partial or total loss of the trader’s initial margin. This happens when they cannot meet the margin requirements for their leveraged position — i.e., they have insufficient funds to keep the trade open.

What is force liquidation & how does it work?

Forced liquidation involves automatic conversion when a trade meets set conditions. In the cryptocurrency industry, force liquidation occurs with margin trading where a trader’s position automatically closes when they fail to maintain the needs of a leveraged position.

Is liquidation a risk?

Liquidation occurs in both margin and futures trading. Trading with a leveraged position is a high-risk strategy, and it is possible to lose your entire collateral (initial margin) if the market makes a large enough move against your leveraged position.

What is voluntary liquidation?

Voluntary liquidation, on the other hand, refers simply to a trader deciding to cash out their crypto-asset for their own reasons. Taking its cue from Ethereum's ERC-20, the Bitcoin blockchain's BRC-20 is an experimental token standard.